Correlation Between TRAVEL LEISURE and PetroChina Company

Can any of the company-specific risk be diversified away by investing in both TRAVEL LEISURE and PetroChina Company at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining TRAVEL LEISURE and PetroChina Company into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between TRAVEL LEISURE DL 01 and PetroChina Company Limited, you can compare the effects of market volatilities on TRAVEL LEISURE and PetroChina Company and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in TRAVEL LEISURE with a short position of PetroChina Company. Check out your portfolio center. Please also check ongoing floating volatility patterns of TRAVEL LEISURE and PetroChina Company.

Diversification Opportunities for TRAVEL LEISURE and PetroChina Company

-0.66

Correlation Coefficient

TRAVEL LEISURE  PetroChina Company

Excellent diversification

The 3 months correlation between TRAVEL and PetroChina is -0.66. Overlapping area represents the amount of risk that can be diversified away by holding TRAVEL LEISURE DL 01 and PetroChina Company Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on PetroChina Limited and TRAVEL LEISURE is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on TRAVEL LEISURE DL 01 are associated (or correlated) with PetroChina Company. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of PetroChina Limited has no effect on the direction of TRAVEL LEISURE i.e., TRAVEL LEISURE and PetroChina Company go up and down completely randomly.

Pair Corralation between TRAVEL LEISURE and PetroChina Company

Assuming the 90 days trading horizon TRAVEL LEISURE DL 01 is expected to under-perform the PetroChina Company. But the stock apears to be less risky and, when comparing its historical volatility, TRAVEL LEISURE DL 01 is 1.76 times less risky than PetroChina Company. The stock trades about -0.33 of its potential returns per unit of risk. The PetroChina Company Limited is currently generating about 0.24 of returns per unit of risk over similar time horizon. If you would invest  67.00  in PetroChina Company Limited on September 29, 2024 and sell it today you would earn a total of  6.00  from holding PetroChina Company Limited or generate 8.96% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Weak
Accuracy	95.0%
Values	Daily Returns

TRAVEL LEISURE DL 01  vs.  PetroChina Company Limited

TRAVEL LEISURE DL

Risk-Adjusted Performance

13 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in TRAVEL LEISURE DL 01 are ranked lower than 13 (%) of all global equities and portfolios over the last 90 days. Despite nearly fragile basic indicators, TRAVEL LEISURE reported solid returns over the last few months and may actually be approaching a breakup point.

PetroChina Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days PetroChina Company Limited has generated negative risk-adjusted returns adding no value to investors with long positions. Despite nearly stable basic indicators, PetroChina Company is not utilizing all of its potentials. The newest stock price disturbance, may contribute to mid-run losses for the stockholders.

Pair Trading with TRAVEL LEISURE and PetroChina Company

The main advantage of trading using opposite TRAVEL LEISURE and PetroChina Company positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if TRAVEL LEISURE position performs unexpectedly, PetroChina Company can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in PetroChina Company will offset losses from the drop in PetroChina Company's long position.

The idea behind TRAVEL LEISURE DL 01 and PetroChina Company Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Equity Valuation module to check real value of public entities based on technical and fundamental data.